Shell profit nearly doubles on record refining margins

Shell profit nearly doubled in the third quarter, as record refining margins and higher gas prices carried the energy group to its strongest quarterly result since 2022 and funded a larger payout to shareholders.

Shell reported adjusted earnings of $10.8 billion for the quarter, up from $5.43 billion a year earlier and above the $10.33 billion analysts expected, according to Reuters. The company also raised its quarterly share buyback to $5 billion from $3 billion, its second largest on record.

Shares rose 2.9 percent in early trading in London on Thursday, outpacing a 0.7 percent gain in a broader index of European energy companies, according to Reuters.

Refining drove the quarter

The standout was refining. Shell's global indicative refining margin reached a record $42 a barrel, compared with $11.6 a year earlier and $24 in the previous quarter, according to Reuters. The margin measures the profitability of turning crude oil into fuels such as diesel and jet fuel.

War-driven disruption explains much of the strength. The US-Israeli war with Iran, now in its ninth month, has disrupted global energy supplies and kept prices elevated, according to Reuters. Shell's refineries benefited from the resulting squeeze on fuel supplies, while its trading desks also performed strongly during the quarter, according to Morningstar coverage.

Across the business, results came in above expectations. Integrated gas earned $3.04 billion and upstream earned $3.19 billion, both ahead of forecasts, according to Reuters. Cash flow from operations reached $21.0 billion, according to Shell, despite outages in the Middle East, and net debt declined to $39.7 billion.

Disruption cut both ways

The same conflict that lifted margins also hurt production. Oil and gas output fell 17 percent in the first nine months of the year from a year earlier, mainly because the conflict reduced volumes from Qatar, according to Reuters. Liquefied natural gas liquefaction volumes rose 12 percent, helped by the ramp-up of LNG Canada and partly offset by the disruption in Qatar.

Production at Shell's Pearl gas-to-liquids plant in Qatar was halted in March after an attack on the Ras Laffan Industrial City damaged one of its two trains. Shell has partially restarted the plant but has said repairs could take about a year, according to Reuters.

Chief executive Wael Sawan said the results reflected a relentless focus on operational performance in a quarter of continued severe disruption to the global energy system, according to the company's release. He also pointed to further investment in the integrated gas business, including the completed ARC Resources acquisition and a final investment decision on LNG Canada Phase 2.

Shell said its portfolio moves during the quarter included the ARC Resources and US Mobility acquisitions, the high-grading of its power portfolio, and divestments of non-core oil and gas assets in the US and Cyprus, according to its release.

Shell also tightened its spending plans. The company lowered its full-year cash capital expenditure outlook to a range of $23 billion to $25 billion, including the ARC acquisition, according to its release. The dividend was left unchanged.

What it means for shareholders and rivals

The payout hands shareholders a concrete return while leaving open how durable the earnings are, since much of the gain traces to prices and margins that war has pushed higher rather than to higher production.

Shell was not the only European major to report bumper profits. Norway's Equinor reported tripled adjusted net income on Wednesday, helped by strong refining margins, high oil and natural gas prices, and increased hydrocarbon production, according to Oilprice coverage.

TotalEnergies also reported sharply higher third-quarter profit and raised its buybacks, according to Reuters, while BP, Chevron and ExxonMobil report on Friday. Austria's OMV also reported a strong quarter, according to Reuters.

For households and industry, the other side of the result is cost. Energy prices have driven inflation for customers globally and increased input costs for industry, according to Reuters. The results show how war-driven prices can swell an oil major's profit at the same time as they squeeze the people buying its fuel.

Related coverage: Gulf supply risk as oil prices climb and Wealthsimple's valuation after a big raise.

Sources: Reuters coverage of Shell's results, Morningstar coverage of the buyback and Shell's third-quarter press release.